Is the Design Agency Model Obsolete?

Spoiler alert: I think it is.

In the past couple of months, since I established myself as a solopreneur, I've been meeting and conversing with a wide range of individuals, both new contacts and familiar connections. Many of these individuals are currently employed or have prior experience with design agencies, particularly within the service design sector (which is my field). A recurring theme in these discussions is the way in which the market has evolved and how it's posing challenges to the traditional design agency model. Numerous people have brought up the frequent rounds of layoffs that these organisations are experiencing. These layoffs seem to be driven by a lack of strategic planning and are purely cost-cutting measures aimed at aligning with certain financial projections in a desperate attempt to keep the ship afloat. I've heard similar stories from the UK, Scandinavia, mainland Europe, Australia, and the US.

I've started connecting the dots, and what follows is my analysis of the situation. As I found myself discussing this topic with various people over the last month, I thought some of you might find it interesting.

During the late 1990s and early 2000s, strategic and service design agencies emerged as distinctive and valuable destinations for organisations seeking to enhance or completely rethink their existing product and service offerings. These organisations often specialised in a mix of physical and digital product design capabilities. Commercially, service design gained prominence in the early 2000s, with companies such as Livework and Engine exclusively focusing on this emerging field.

If you were in London in 2007, 2008 or 2009 and had an interest in service design, you might have attended a meetup where you'd encounter a small, dedicated group of enthusiasts. Typically, these were the same individuals from established small firms. Fast forward 15 years to today, and the Service Design Network conference in Berlin this year drew over 800 attendees. The community of service designers has experienced exponential growth in the past decade.

I observe two significant shifts in the landscape that, on one hand, have eroded the traditional design agency model and, on the other, are creating new opportunities for design and designers.

The First Shift: Designers Settled in Large Consulting Firms.

Large IT and management consulting firms embarked on a spree of acquiring small design studios in the early 2010s, and the trend hasn't waned since. They snapped up studios of all shapes and sizes, even those with no substantial history, clearly established solely for the purpose of being sold. Only a few retained their independence.

Designers found themselves integrated into machines operating under entirely different principles. Initially, my thought was, "They'll never make it; they'll crush the designers' souls, and they'll all leave." Indeed, those management consultants did take a toll on the designers, causing some of the best talents in these acquired studios to leave. In many instances, a significant portion of the creative core left. However, I underestimated the financial clout these firms possess and their resilience. They began acquiring design talent to retain quality thinking. They dangled generous salaries, enticing perks, and impressive titles to stroke many egos. Over time, these systems seemed to find their equilibrium, perhaps not in an ideal way, but they managed to establish a new rhythm. These organisations can now offer full-stack services, spanning from conceptualisation to the implementation and maintenance of technological solutions.

For small to medium design studios, services like customer research, concept development, and structuring of services and products are pivotal offerings that keep their businesses afloat. In contrast, the giants in the industry treat these elements as mere add-ons to their core offerings. Their primary revenue stream lies in the implementation and maintenance of technology, while the rest is a supplementary service, often provided for little money.

On the client side, when an organisation requires a substantial digital transformation, it's more convenient to turn to these industry behemoths for a comprehensive solution rather than dealing with multiple agencies, each contributing a piece of the puzzle. Integrating the components can be challenging. On several occasions during my tenure as Design Director at Livework Studio, we encountered clients who had invested significantly in a renowned global innovation and design studio, only to find themselves at a loss, saying, "We hired them, they created this, but we have no idea how to move forward. Can you help us?" We would often then agree to take the work forward, usually structuring the service and making it ready for implementation. To then hand over to a tech partner that the client already had. Solutions would then pass through various hands, resulting in a challenging endeavour to maintain consistency.

Despite appearing straightforward from the outside, the full-stack approach comes with the drawback of loosing depth. Most of these industry giants operate on a "lift and shift" model – they solve a problem once, productise it, and endlessly replicate solutions. There's often no context adjustment, little understanding of customers and employees, minimal cultural sensitivity, and a dearth of innovation. It's essentially a copy-paste of "best practices." Clients love "best practices," don't they? Their focus is predominantly on the product, with the service aspect either poorly comprehended or completely neglected.

In the graph below, I've mapped the Depth of Design on one axis, ranging from designing a concept, its structure, the intricate details, to its implementation. On the other axis, I've charted the Object of Design, spanning products, services, organisations (e.g., governance, leadership, decision-making practices, processes, infrastructure), and redefining the market (e.g., new business models, cross-industry innovations that change the landscape). Most IT consulting firms that absorbed design studios primarily reside in the yellow zone, focusing on the product from concept to implementation (and maintenance). In the purple zone, you'll find elite strategic management consultants who concentrate on reshaping organisations and their markets.

In both scenarios, designers are frequently utilised as corporate entertainers, facilitating workshops or conducting research to fulfil a checkbox, with limited opportunities to harness their full potential and actively contribute to the actual design of the service at hand. The part in red is where niche service design agencies often exist, as they specialise in the service domain, bridging the gap between the product and the organisation.

The Second Shift: The Emergence of In-House Teams

The second significant shift that has permanently transformed the landscape is the consistent rise of in-house design teams. This was a topic my friend and colleague, Antonio Iadarola, based in New York, and I often discussed as we compared notes on developments in the United States and Europe. We discovered many similarities.

Over the past decade, internal service design teams have been steadily on the rise across various industries. Organisations are recognising the potential role of design in structuring the present and strategically shaping the future. They're actively hiring design professionals, including UX designers, service designers, and strategic designers.

However, the challenge lies in organisations not fully comprehending how to effectively utilise these teams. They struggle with determining their place on the organisational chart, creating sensible reporting lines within the current structure, defining their roles, offering incentives, providing support, and unlocking their full potential. Despite these hurdles, these design teams are in place.

Consequently, the default approach of seeking help from external service design agencies when an organisation needs to enhance or innovate its services is no longer a given. After all, they now have an in-house design team. Justifying the expense becomes a challenge. As a result, organisations have gradually reduced their reliance on external design services, with some implementing a complete freeze on external hires. They expect their internal teams to shoulder the workload, even though these teams aren't optimally positioned to execute the necessary work.

What Now?

I see this as a realm dominated by large management and IT consulting firms on one end, and by individual provocateurs and thought leaders on the other. The middle ground is dwindling. This model thrived in the past, generating substantial profits for some, but now it appears to be fading. I also sense a distinct opportunity for something new to emerge. The large consultants struggle to recognise the value of services, while the individual thought leaders can offer advice but often fall short in driving substantial change. I anticipate a fresh model will emerge soon, and I'm eager to witness its development. Any ideas? What’s your experience?

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